NIGERIA'S MISERY INDEX

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The Misery Index measures what the social and economic costs for individuals living in a country is, by summing up the rates of inflation and unemployment. Essentially, the Misery Index helps us to understand the hardship situation in a country.

The first Misery Index was created by an Economist named Arthur Okun in the 1970s. The Index simply looked at inflation and unemployment variables, and how they contribute to the misery of an individual. This has since been developed by other individuals like Robert Barro and Steve Hanke.

My preferred is the index Steve Hanke, an Economist from Johns Hopkins university, built upon in 2011, by adding interest rate, inflation rate and unemployment rate, while subtracting the percentage change in GDP per capita to determine the Misery Index for a country. 

Misery Index in some ways, measures happiness, which is an important variable in development. It is pretty obvious why that is so, from the constellation of indicators used in the index (Particularly, unemployment and inflation). Unemployment affects wages which has a direct impact on livelihood, while inflation erodes the value of a currency, thereby reducing purchasing power and increasing the cost of living. Put differently, an unemployed individual who is faced with high cost of living have great tendency to be unhappy. 

I have done a back-of-envelope calculation to determine the current misery index for Nigeria. To help calculate this, the following variables of interest were needed; 

Monetary Policy Rate (Interest rate benchmark) = 12.5%

Inflation rate for Q2=12.82%

Q2 Unemployment Rate=27.1%

Percentage change in GDP per capita between Q1 (178,000 Naira) and Q2 (170,000 Naira) = -4.49%

So, going by the Hanke's Misery Index; Unemployment rate + Inflation rate + MPR - Percentage change in GDP per capita would amount to, 56.91%. 

That is,

Misery Index: 27.1% + 12.82% + 12.5% - (-4.49%) = 56.91%

Should we be worried? Yes, absolutely!

From the equation, It is clear that the biggest contributor to Nigeria's misery index is unemployment. This burden of concern raises three questions in my mind; 

  • What should government be doing to create jobs and allow for sustainable growth of SMEs?
  • Is the present tax regime friendly towards micro businesses ?
  • What effort should be made by the government to attract or sustain private capital in agriculture and manufacturing which has potentials to create jobs in Nigeria, particularly the manufacturing sector that has suffered four consecutive months of contraction since May?

Recently, the National Bureau of Statistics reported a GDP contraction of 7.97 percentage points from Q1 Of 2020 GDP of 1.87 to record a negative growth of 6.10 in the Q2 of the year, signalling an impending recession. Even though, technically, the country is already in one, following the high rate of unemployment and significant reduction in industrial production in Q2.

At this point in the lives of many Nigerians, and with a 57% misery index, the government (Federal and State) should not only be concerned about creating new jobs but lost jobs have to be recovered. Improving investment and trade policies have fundamentally become a precursor to allow for private investment spending and trade facilitation, particularly non-oil export, which are important components of the GDP. The government, using its fiscal powers to increase spending on power infrastructure; IT infrastructure; roads and rails; social palliative; and research and development; is equally essential to push for the recovery that we hope, out of intense optimism, to see at Q4 of this year, or Q1 of 2021. 


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